The present invention relates to a method and system for rapidly establishing credit card merchant accounts (MAs) whereby merchants can begin processing credit card transactions or exchanging other data pertinent to such transactions nearly instantaneously after applying for a merchant account. Once the MAs are established, credit card transactions may be processed in any sales environment, including sales over the Internet and sales at conventional bricks-and-mortar establishments.
Electronic commerce over global computer networks such as the Internet is expanding rapidly. It has been estimated that worldwide Internet commerce will reach $1.44 trillion by the year 2003. The number of so-called xe2x80x9c.comxe2x80x9d businesses which sell their wares over the Internet is exploding. In fact, software has been developed that allows a start-up e-commerce merchant to establish an Internet presence, display products and prices and generally conduct business over the Internet in less than an hour. Also, Internet merchant host services have been established which provide the infrastructure for supporting on-line businesses so that the e-commerce merchant need not even supply the computer hardware and server software for establishing an electronic storefront.
One impediment to quickly establishing an on-line business presence is establishing a method of receiving payment for the goods or services being offered for sale over the Internet. Because the parties to Internet transactions are remote from one another, tendering cash or offering checks and other traditional forms of payment is generally impractical. Credit card transactions therefore have become the de facto standard method of tendering payment over the Internet. But, before an on-line merchant can begin accepting credit card payments, the merchant must first establish a credit card merchant account (MA). Of course, the same applies to merchants operating out of conventional bricks-and-mortar establishments.
Each MA includes a merchant identification number (MID), a terminal identification number (TID), and a gateway identification number (GID). The MID uniquely identifies the merchant, and the TID uniquely identifies the merchant location where a particular transaction occurs. In general, a merchant will have but a single MID, but may have multiple TIDs if the merchant is doing business from multiple locations, including any combination of different Internet addresses and bricks-and-mortar sites. Merchants doing business exclusively over the Internet or exclusively at a single bricks-and-mortar location, however, will likely have but a single TID. The GID identifies an Internet gateway between the public Internet and a private network of banks, independent sales organizations (ISOs), acquirer banks (ACQs) and processing centers for processing credit card transactions.
Using traditional methods, applying for and establishing an MA can take from a few days to several weeks. This is a significant burden to the start-up on-line merchant. During the period when the merchant is waiting for the MA the merchant is effectively prevented from conducting business, possibly losing revenue that may be necessary for the business to survive and grow. Thus, there is an acute need for a method of establishing credit card processing MAs for on-line merchants. By the same token, conventional bricks-and-mortar merchants will also benefit from an expedited method for establishing credit card MAs. The present invention provides such a method, as well as a system for implementing the inventive method.
Before describing the method and system of the present invention, however, it is first necessary to describe the on-line credit card transaction process and the elements necessary to establish an MA. FIG. 1 shows a schematic diagram of a typical set-up for processing credit card transactions over the Internet. An on-line merchant is shown at 12. Merchant 12 may be independently operating its own web server, supporting its web presence with its own hardware and software, or the merchant may be setting up its online business through a merchant host server 14. (Since the merchant host server 14 is optional, it is shown in dashed lines in the figure.) The Internet is shown as an amorphous cloud 22 of interconnected networks and packet switched routers and computers, all implementing standard Internet protocols as is known in the art.
Also shown connected to the Internet 22 are an on-line customer 18, an independent sales organization (ISO) 20 or, alternatively, acquirer bank (ACQ) 21 and a payment gateway 16. The payment gateway 16 is in turn connected to a credit card processing front-end system or authorization center 24 which is connected to a back-end settlement network 26. The merchant""s acquiring bank 28 (which may be different from ACQ 21 but often will be the same entity), a credit card issuing bank 30, and the ISO 20 are connected through the back-end settlement network 26.
During the course of an Internet transaction, a payment page is sent from the merchant 12 to the on-line customer 18 and displayed by the customer""s Internet browser. The customer enters his or her credit card number, the expiration date of the card, and the purchase amount in the designated fields of the payment page and selects a transmit function typically activated by mouse clicking on a software button displayed on the payment page. The MID, TID and GID associated with the merchant""s MA are embedded within the instructions for displaying the payment page.
The browser transmit function sends the transaction data, preferably through a secure socket layer (SSL), including the credit card number, expiration date, the MID and the TID, to an Internet gateway 16 designated by the GID embedded within the payment page. The gateway directs the transaction to front-end processing center 24, also identified by the GID. The front-end processing center verifies that the card has not been reported lost or stolen, that the transaction is within the customer""s credit limit, and may perform other security checks. Typically, this is accomplished by contacting a transaction authorization agent associated with the brand of the credit card, for example, VISA, Mastercard, American Express, Discover, and the like. Provided that all of the data and security checks pass muster, the transaction is approved. A message, usually including an approval code, is sent back to the merchant through the payment gateway 16 and over the Internet 22. At this point the transaction is considered to be authorized (or xe2x80x9ccapturedxe2x80x9d).
Once the transaction data reaches the front-end system 24, the transaction proceeds in the conventional manner. The front-end processing center accumulates transactions throughout each business day. At the end of each day the front-end processing center batches the captured transactions to the various acquiring banks associated with the merchants whose transaction have been accumulated. The proper acquiring bank for a particular transaction may be identified from the MID and TID associated with the transaction.
Once the acquiring bank receives the batched transactions, the bank performs an automated clearinghouse function on the transactions (ACH). As part of the ACH, the acquiring bank batches transaction files to each of the card issuing banks whose credit card holders have entered transactions captured by the front-end processing center and forwarded to the acquiring bank. The issuing banks post the transactions to their cardholders"" accounts to be listed on the cardholders"" monthly statements. The issuing bank then transfers funds covering the transactions to the acquiring bank. The ACH function further sends transaction files to the ISOs or ACQs responsible for establishing the MAs with the merchants whose transactions are being cleared. The ISOs and ACQs maintain risk management files which include underwriting and transaction approval guidelines. If various transactions do not meet the transaction approval guidelines, the ISO or ACQ withholds settlement of the transactions and prevents funds from being dispersed by the acquiring bank to the merchant unless or until a satisfactory determination that the transactions are legitimate has been made. If, however, the transactions do not run afoul of the transaction approval guidelines, the funds transfer is approved, and the acquiring bank transfers the funds to the merchant. Dispersing the finds to the merchant completes the settlement process.
As can be seen from the above description, a large amount of data must pass between a number of different entities or sites during the course of the credit card transaction. Furthermore, there are large numbers of merchants processing transactions using different shopping cart software, vendor payment gateways, front-end processing centers, back-end settlement networks, acquiring banks, issuing banks and ISOs or ACQs. All of these components and organizations must be properly identified and properly set up to identify and process transactions for each particular merchant such as merchant 12. Setting up the merchant with proper identification codes, and updating the payment gateway 16, the front-end systems 24, the back-end systems 26, the acquiring bank 28, and the ISO 20 or ACQ 21 with information identifying the merchant associated with the identification codes defined by a newly-created MA all take place when the MA is established. Identifying and assembling available active MID, TID and GID into a single account and updating the various systems with the new MID, TID, and GID assigned to a new MA is a primary reason for the delay in establishing new MAs. Another cause for delay in establishing new MAs is the hiatus in the rest of the application process during the underwriting step wherein the merchant""s bona fides are established and confirmed.
The present invention relates to a method for quickly and efficiently establishing merchant accounts (MAs) which allow on-line and conventionally operated companies to accept credit cards as payment over a computer network. For purposes of the present application the invention will be described as being carried out over the global computer network commonly referred to as the Internet. However, it should be noted that the present invention is not limited to embodiments carried out over the Internet; other computer networks, or combinations of networks, may alternatively be employed. The method of the present invention allows a merchant to begin processing transactions substantially immediately upon submitting an on-line merchant account application. The present invention may be carried out using software code readily written by those skilled in the art to implement the various functions described herein.
According to a preferred embodiment of the invention, an application processing entity, such as an independent sales organization (ISO) or an acquirer bank (ACQ), is responsible for establishing merchant accounts, including assigning to the merchant merchant identification numbers (MIDs), terminal identification numbers (TIDs) and gateway identification numbers (GIDs) to enable the merchant to process credit card transactions. This first processing entity (ISO or ACQ) is also responsible for updating the various systems involved in processing transactions and settling accounts for transactions subsequently entered by the merchant.
According to a preferred method of the present invention, the application processing entity maintains a database of active available MIDs, TIDs and GIDs. Upon receiving an indication from a merchant that the merchant desires to establish a new merchant account, the application processing entity transmits a merchant account application to the merchant. The merchant then completes the form, preferably on-line, and transmits the data requested on the form to the application processing entity. The application process is preferably controlled by a merchant account application network server operated by the application processing entity, and the resultant exchange of forms and data preferably takes place over the Internet.
Once the application processing entity receives the merchant""s completed application form, the application processing entity creates a new merchant account uniquely associated with the merchant. The new merchant account is populated by a series of shell accounts associating particular MIDs, TIDs and GIDs selected from a pool of available active MIDs, TIDs and GIDs stored in the application processing entity""s database. The MID, TID and GID assigned to the new merchant account (MA) are then sent to the merchant who can immediately use the MID, TID and GID assigned to it to process credit card transactions. The various credit card transaction processing systems over the Internet are also updated with the new MID, TID and GID assigned to the new MA.
In an alternative embodiment of the invention (which may use API or XML), an individual MID, TID and GID would not be assigned to a single account prior to the assignment of these identification numbers to a particular merchant and the activation of the account. Rather, the MID, TID and GID would be assigned in real time or xe2x80x9con the flyxe2x80x9d by pulling these identification numbers from another server such as a vendor or a private vendor gateway when the merchant submits an indication that it wishes to establish a new MA.
Further, according to the inventive method of the present invention, upon creating the new merchant account, the application processing entity may set a divert flag in its own back-end systems. The divert flag acts to prevent the transfer of finds from an acquiring bank associated with the newly-created merchant account (MA) to the merchant in settlement of transactions processed by the merchant. The divert flag will remain set until the merchant""s application completes the underwriting process in which the ISO determines whether the merchant represents an acceptable risk according to predefined conventional risk criteria. Since the merchant""s MID, TID and GID are active, the merchant can process credit card transactions immediately, even though the merchant""s application has not completed the underwriting process. However, the funds associated with the credit card transactions processed by the merchant will not be dispersed to the merchant while the divert flag is set.
When the application successfully completes the underwriting process, the divert flag may be reset and funds allowed to flow to the merchant to cover the diverted transactions. In this way, the merchant may begin accepting credit cards substantially immediately upon opening the merchant account, even while the underwriting process is taking place. At the same time, the application processing entity and the acquiring bank associated with the account are protected against releasing funds to a possibly unscrupulous or fraudulent applicant until the merchant has passed the underwriting process.
The method of the present invention further includes provisions for displaying a banner advertisement on the web site of a third party such as an application service provider providing web hosting services. Such a banner advertisement may include a hypertext link to a web site operated by the application processing entity (ISO or ACQ). Thus, a merchant viewing the web site of the third party may access the application processing entity""s web site by mouse clicking the banner advertisement and executing the hypertext link to the web site. The hypertext link associated with the banner advertisement may include embedded or encoded data which identifies the party hosting the banner advertisement, so that the application processing entity may record how a merchant applicant was directed to the application processing entity""s site. The application processing entity may then establish residual tables so that the party who directed the merchant to the application processing entity may share in the profits from servicing the merchant""s account.